Law Offices of Connie Yi, PC - estate planning
Tell Us About Your Case

For the safety of our community, clients and staff, we have suspended all in-person meeting effective March 17, 2020. All consultation meetings will be via Phone or Zoom Video Conferencing. Please contact us at 925-484-0888 or email us directly at [email protected] to schedule the consultation.

Bay Area Estate And Tax Planning Law Firm
Estate Planning
Trust Administration and probate

Because a mind – and a tax break – is a terrible thing to waste p2

| Oct 27, 2014 | Uncategorized |

California law now allows taxpayers to claim a credit for donating to the Cal Grant B program. The program helps low-income students in the state pay for college books and housing. In an effort to increase the amount of money and the number of students who benefit, lawmakers developed a plan that also benefits taxpayers.

As we said in our last post, a donation can lower your tax bill in a couple of ways. On your state tax return, you can use it for a tax credit, or you can report it as a charitable deduction. You may not do both. That’s not to say that you can’t report the donation as a charitable deduction on your federal tax return.

So what is a tax credit? A tax credit is a dollar-for-dollar reduction in the amount of taxes you owe. In this case, the credit is 60 percent of the donation for 2014. Say you send $1,000 to the College Access Tax Credit Fund. Your return shows that you owe $5,000 to the state. You then deduct 60 percent of your donation — $600 — from your tax bill for the amount you must pay. The bill is reduced to $5,400.

That’s the theory. In practice, there are a few hoops to jump through. taxpayers will have to apply for the credit and be certified before they make a donation to the fund. To make the plan work, the state needs to limit the dollar amount of tax credits to no more than $500 million.

Another quick caveat: Generally, a tax credit cannot reduce a tax liability to less than $0. In the example above, then, if the tax bill were $500, applying the tax credit would reduce the bill to $0.

How does this differ from a charitable deduction? We’ll explain in our next post.

Source: SFGate, “Huge tax break for donating to California college students,” Kathleen Pender, Oct. 3, 2014

Archives

FindLaw Network

Recent Blog Post

Even a fortune can disappear without sound estate planning

Some figures baffle.Like the speed of light. Like the age and size of the universe. And like estimates pegging the personal fortunes of America's richest families.Consider this imagery relevant to the storied Vanderbilt family for a moment: a pile of money equaling...

Remarrying couples unquestionably need to focus on estate planning

Many remarrying California individuals fail to timely consider and update existing estate plans to reflect new realities.Don't be one of them. Many remarrying California individuals fail to timely consider and update existing estate plans to reflect new...

View More Blog Posts